Correlation Between Establishment Labs and Electromed

Can any of the company-specific risk be diversified away by investing in both Establishment Labs and Electromed at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Establishment Labs and Electromed into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Establishment Labs Holdings and Electromed, you can compare the effects of market volatilities on Establishment Labs and Electromed and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Establishment Labs with a short position of Electromed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Establishment Labs and Electromed.

Diversification Opportunities for Establishment Labs and Electromed

0.76

Correlation Coefficient

Establishment Labs  Electromed

Poor diversification

The 3 months correlation between Establishment and Electromed is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Establishment Labs Holdings and Electromed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electromed and Establishment Labs is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Establishment Labs Holdings are associated (or correlated) with Electromed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electromed has no effect on the direction of Establishment Labs i.e., Establishment Labs and Electromed go up and down completely randomly.

Pair Corralation between Establishment Labs and Electromed

Given the investment horizon of 90 days Establishment Labs Holdings is expected to generate 1.79 times more return on investment than Electromed. However, Establishment Labs is 1.79 times more volatile than Electromed. It trades about 0.07 of its potential returns per unit of risk. Electromed is currently generating about -0.73 per unit of risk. If you would invest  5,104  in Establishment Labs Holdings on January 20, 2024 and sell it today you would earn a total of  153.00  from holding Establishment Labs Holdings or generate 3.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Establishment Labs Holdings  vs.  Electromed

Establishment Labs

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Establishment Labs Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Establishment Labs sustained solid returns over the last few months and may actually be approaching a breakup point.

Electromed

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electromed are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Electromed exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Establishment Labs and Electromed

The main advantage of trading using opposite Establishment Labs and Electromed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Establishment Labs position performs unexpectedly, Electromed can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Electromed will offset losses from the drop in Electromed's long position.

The idea behind Establishment Labs Holdings and Electromed pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.